A Strong Finish

December 2, 2006

O ne major topic of discussion currently is Parkdale’s plant in Honduras and what it means
for the industry. There is much speculation among spinners about whether other companies will
quickly follow and open plants in the Central America-Dominican Republic Free Trade Agreeement
(CAFTA-DR) region.

“Everyone is playing it close to the vest,” said a multisystem spinner. “One question is,
what can companies afford to do? Putting up a spinning plant is a major endeavor for anyone. You
are talking $40 million to $50 million.”

Other subjects on mill managers’ minds include simple survival and a lack of direction from
retailers about early 2007.

“We are just trying to figure out what everyone else is doing,” said a ring spinner.

Happy, But Wary

Several spinners reported strong
running conditions and planned to take the usual one week or slightly longer shutdown over the
Christmas holiday. At the same time, one industry observer reports many spinners will be taking
extended production breaks. The truth, as usual, is probably somewhere in between.

One multisystem spinner described his running conditions as “surprisingly good for fourth
quarter.” Another noted that his plants are all currently running 24/7.

One specialty ring spinner summed up the year and the fourth quarter by saying, “We are
quite pleased with the overall volume of business for 2006, and we have been pleasantly surprised
to have our business hold up well during the fourth quarter, which traditionally becomes a slow
period.”

This month’s discussion about the business outlook quickly became a contest to see who could
come up with the best new way to say “cautiously optimistic.”

Military business is on the wane and
has been for some months. At least one spinner mentioned doing good business with weavers. Another
reported gaining business in the nonmilitary uniform area. Companies continue to shift more to
nonapparel applications. There has also been slightly higher demand for technical fiber
yarns.

Fiber And Yarn Pricing

Spinners have been reasonably happy
with cotton prices, which have been relatively stable throughout the year. On the man-made fiber
side, they are still waiting for the express elevator that prices have been riding skyward to stop
and start back down.

One multisystem spinner reports he is “waiting patiently for man-made fiber prices to fall
in line with oil prices.” He also mentioned that spinners have few options because they cannot
hedge man-made fibers or economically buy the chemicals and make the fibers themselves. He summed
up the situation by saying “you can’t fight city hall.”

Balancing The Export Equation

By and large, spinners are optimistic
about current and future export business, especially CAFTA-DR opportunities.

“Exports to Central America continue to increase, and we expect these opportunities to
continue,” said a specialty ring spinner. “We are hopeful to increase our distribution in South
America during 2007.”

At least one mill executive expressed profound concerns about the recent agreement with
Haiti.

The Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 or, HOPE,
allows Haitian textile manufacturers to include yarns and fabrics from China in garments exported
duty-free to the United States while other countries must use regionally made yarns and fabrics.

“The Haiti legislation will destabilize the region,” he predicted.

December Cotton Crop Numbers

The US Department of Agriculture
(USDA) December forecast of the 2006 cotton crop remains at 21.3 million bales, about 11 percent
below last season’s record. The national yield was unchanged at 798 pounds per harvested acre.
Upland production is projected at nearly 20.6 million bales in 2006/07, down from last year’s 23.3
million.

The extra-long staple crop is projected to increase nearly 100,000 bales, to 729,000 bales.
A larger area in California this season accounts for the gain. Compared with last month, crop
estimates for three of the four regions were lower – the Southeast provided the only increase in
December.

According to the USDA, total classings through the week ending December 7 were approximately
15.8 million running bales. Nationally, 93.4 percent of the crop graded 41 or better, well above
the five-year average of 84.1 percent. The national average staple length thus far is 35.1, up
slightly from the five-year average of 34.9. Average staple length is higher than the five-year
average in all regions. Nationally, the average strength for the crop is 29.3 grams/tex, higher
than the five-year average of 28.9 grams/tex. National average micronaire is 44.6, equal to the
five-year average. With regards to uniformity, the 2006-07 crop is slightly higher than the
five-year average of 81.0.